The Rising Influence of Rising Affluence

[DewDiligence]

China Resumes Imports of US Corn

[To be read in conjunction with the comments in #msg-59333127 and the chart in #msg-60366855.]

http://online.wsj.com/article/SB10001424052748704608504576208913644223364.html

›MARCH 19, 2011
By TOM POLANSEK

China re-entered the market for U.S. corn this week after a months-long hiatus, spurring a more than 11% surge in prices for the grain.

China, which buys most of its grain through state agencies, struck a deal Thursday and may be gearing up to make further purchases, according to a person familiar with the situation. The person, who works at an international trade service agency, didn't say how many metric tons of corn were bought.

Since buying heavily last summer, its first big purchases in 15 years, China has been out of the market. That is in part due to soaring corn prices, which this month hit their highest level since July 2008 on the Chicago Board of Trade. In addition, prices for imported corn haven't been competitive with China's domestic prices.

But China may no longer be able to put off its need for corn, which it uses mainly for livestock feed and fuel production, analysts say. China is the world's second-largest consumer of corn after the U.S., and demand is rising as the nation's hunger for pork and other meats grow. The nation's corn stocks are at a historically low level, suggesting China may have to import large volumes, Standard Chartered wrote in research note last month.

Some say that China may even be stockpiling to resell to Japan after the earthquake-battered nation repairs its damaged grains infrastructure.

An email sent to Cofco, China's state grain trader, seeking comments Friday wasn't immediately returned.

For the second straight day, U.S. corn futures touched exchange-imposed limits on one-day gains on the CBOT. Corn for May delivery closed up 5.7% to $6.8350 a bushel Friday and has spiked more than 11% over the past two sessions.

China's purchases now are particularly significant because stockpiles of corn in the U.S., the world's No. 1 corn grower and exporter, are projected to hit 15-year lows this year. Rising prices of corn, and other grains like wheat and soybeans, are contributing to food-price inflation in the U.S. Higher food prices have been a factor in the political turmoil in the Mideast and have sparked a scramble by governments who fear a repeat of the 2008 food crisis.

"News of potential U.S. corn sales to China continues to captivate this market," Benson Quinn Commodities wrote in a note to clients.

Talk that China had entered the world market spread Thursday, fueled in part by a report from the U.S. Department of Agriculture that private exporters struck deals to sell 116,000 metric tons of corn for delivery to unknown destinations during the 2010-2011 marketing year, which ends Aug. 31.

Large purchases by China, which has strived for self-sufficiency, would be an unexpected source of demand for the market and could drain supplies further. [I strongly disagree with the word “unexpected” in this context.] The USDA has projected China will import one million tons of corn for the current 2010-11 marketing year.

Traders see several reasons China may have jumped back in the market. It simply may be taking advantage of recent price declines to add more to its reserves. Corn prices in China have surged following an unprecedented buying spree by feed mills due to rising demand from the hog industry, which uses corn for animal feed, according to the China Corn Network, a consultancy tracking the cash market.

China could be accumulating corn in anticipation of demand from Japan, which is expected to increase purchases once it recovers from last week's devastating earthquake and tsunami. China could make a profit selling U.S. corn to Japan, the world's top importer of the grain.

"While grain imports in Japan have been mostly stalled for the past week, when imports resume, they could be larger than before," said Karl Setzer, an analyst for MaxYield Cooperative in Iowa.

Major grain import facilities in northern Japan suffered severe damage in last week's disasters, with roughly 30% of the country's feed production capacity affected, according to the U.S. Grains Council. Much of the shortfall is being offset by mills in other areas of the country and mills restarting after the disaster, yet getting feed supplies to animal production facilities is an ongoing problem, the trade group said.‹